Music’s New Monetary Value

By Rowland Goddard, Director of Finance

You know that song you’ve heard on TikTok a thousand times, “I do the same thing I told you that I never would…” and then it goes on, but it is just a 10-second snippet of a 3-minute song. That same snippet is played millions of times a day by people all over the world in videos on TikTok. Some of these viewers find the song catchy and will find it on their music streaming service (Apple Music, Spotify, Amazon Music, etc.). Just a 10-second excerpt of a song has allowed it to blow up and reach millions more people than it otherwise would not have. The music industry has changed significantly with technology over the years. Now an external driver, social media, will push it forwards.

Record labels and artists previously relied on selling physical copies of their content. This created an unavoidable risk because whether it was on vinyl, cassette, or CD, it had to be made and some of these copies could be left unsold. Apple and the Internet changed this all with iTunes allowing artists to sell their music digitally. At the time, this exposed listeners to a vast collection of music, but it shrivels in comparison to what’s available now. Piracy became a major problem because users didn’t want to pay for every song individually. The solution was offering users an almost unlimited catalogue through streaming services and algorithms which are constantly exposing them to new music, for a monthly fee. 

At the beginning of these music streaming services, labels and artists had a difficult time finding their footing. The application algorithms were subpar so listeners were exposed to less relevant music and artists often complained about compensation. Now after years of development, record labels can count on streaming services for a consistent revenue stream. This has bolstered the valuations of music giants such as Universal and Sony. However, this is just the beginning of possible growth for these giants as they looked towards a new revenue stream, social media.

Three years ago, social media companies didn’t pay music companies. After pressure from record labels, Facebook signed a deal with Universal at the end of 2017. Now the competition for rights has intensified and record executives no longer have to persuade these companies. Currently, the music industry earns $2 billion annually from social, gaming and fitness loyalty. This figure is predicted to grow in the coming years. 

When TikTok completely changed the way media is consumed the other companies had to play catch up. Now in almost every social media app, there will be a section for short clips (“shorts”). This has created competition causing inflated music rights contracts. These companies don’t want to be seen as a TikTok copy so are investing in original content. In August, YouTube invested $100 million in its own shorts version. These new contracts and investments will benefit labels and artists; all because of a 10-second clip. 

The song referenced at the beginning of this article is STAY, by the Kid Laroi and Justin Bieber, and it’s one of many songs to explode on TikTok. Songs can rise up organically, both new and old. Music outside the mainstream for decades has an opportunity to reignite if paired with the right video or trend. The music is part of the video creators’ storytelling. TikTok has become a centre for labels to promote music. Sixty-seven percent of TikTok users are likely to search for a song after listening to them on the app. Royalties get paid by the number of posts a song has – not by views on a video, thereby, rewarding the popularity of the song and not the video. This also helps distribute new music instead of concentrating on videos and accounts that already have a following. 

It is clear that music is now more accessible and lucrative than ever before. As media companies grow and competition intensifies, labels and artists will continue to benefit. It will be fun to watch companies continue to battle for our short and divided attention. 

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